Finra Missed Chances to Catch Stanford and Madoff, Report Says

The Financial Industry Regulatory Authority didn’t fully probe transactions at Bernard Madoff’s firm and repeatedly failed to investigate tips about R. Allen Stanford’s alleged $7 billion fraud, an internal report said.
The staff of the U.S. brokerage industry’s main regulator is “not adequately trained” on its investigative authority, and the Washington-based regulator lacks procedures to escalate matters to senior management or special investigators “based on the gravity and substance of the fraud allegations,” according to a report posted on Finra’s Web site today.
The findings follow a series of reports by Securities and Exchange Commission Inspector General H. David Kotz, which faulted the SEC’s oversight of Madoff over 16 years and examined the agency’s attempts to investigate Stanford. In the Stanford case, Kotz concluded that the SEC was hampered by jurisdictional limits and Stanford’s refusal to cooperate.
“As regulators, we owe it to investors -- especially those harmed by recent scandals -- to develop a better, more comprehensive, response to fraud,” Finra Chief Executive Officer Richard Ketchum said in a statement. “I am committed to taking the lessons from the report’s findings to make Finra even stronger.”
Finra said it will create a new Office of Fraud Detection and Market Intelligence to ensure that staff with expertise in fraud detection respond rapidly to suspected scams.